Companies choose to outsource warehousing and transportation operations for a variety of reasons. Having a successful 3PL (third party logistic) partnership is a great technique for strengthening a company’s capabilities relatively quickly with minimal investment of capital resources. However, outsourcing these critical, customer facing activities does not mean that a company is relieved of management responsibility and oversight nor does it mean that a company can successfully outsource the functions without developing and communicating detailed knowledge and operational requirements.
Clear definition of operational requirements in terms that 3PL partners can understand and use to design effective operations is critical to selecting a 3PL partner, receiving the most cost effective pricing, and managing an ongoing 3PL relationship.
Many well managed companies, even ones that have previously outsourced operations, do not take the time or expend the resources to clearly define their operational requirements in a format that can be effectively utilized by potential 3PL partners. The data that can be easily reported from financial systems and some execution systems is typically not adequate for designing effective operational processes, warehouse layouts, and transportation networks. In most cases, data from corporate databases must be “translated” into operational information that can be utilized to design cost effective warehousing and transportation solutions. Failure to clearly define and communicate operational and performance requirements results in longer time to select a partner, higher contract pricing, longer and more difficult contract negotiations, implementation problems and delays, and higher probability of performance failures and relationship dissolution.
For example, a company that is outsourcing warehouse operations may specify that they receive 20 truckloads per week that contain a total of 200 items per week. A 3PL needs much more detailed information in order to produce a best price bid.
Accurate answers to these questions will dramatically impact the labor and space required to efficiently and effectively manage inbound operations and the cost of the operation. For a follow-up, on our next post, we will review inventory and outbound requirements definition.
How do you specify and define the attributes of your receiving operations?
As of September 8, 2020, Crimson & Co (formerly The Progress Group/TPG) has rebranded as Argon & Co following the successful merger with Argon Consulting in April 2018.